On March 13, 2020, the Executive issued the Decree N° 4.160 published in Official Gazette N° 6.159 Extraordinary, whereby an Overall Alarm Status nationwide was declared, for the purposes of adopting measures involving the protection and preservation of health of the Venezuelan population and intended to mitigate and eliminate epidemic risks in connection with the COVID-19 coronavirus.
Based on this decree, a series of measures were adopted, on one hand, measures to prevent the spread of the virus: by imposing circulation restrictions and by ordering the suspension of work-related activities, including domestic banking activity, and on the other, protective economic measures, i.e., tariff exemption, the suspension of rental payments of property used as primary residence and for commercial purposes and a special payment regime for credits in force and effect in the domestic banking sector, both public and private “… allowing thereby financial relief for debtors in light of the extraordinary disruption originated by the COVID-19 coronavirus worldwide spread crisis”.
In addition, the Public Administration (at the National, State and Municipal level, both centralized and decentralized) has been urged to support these measures by implementing appropriate plans and protocols on the basis of each of competence and, similarly, the Supreme Court of Justice to take the regulatory provisions necessary in connection with the different situations resulting from the application of circulation restrictions or the suspension of work-related activities, and its effects on the processes carried out by the Judiciary and the overall operation of Public Administration entities, agencies and bodies.
Even though the factual situations resulting from COVID-19 and the measures taken by decree and other legal and sublegal instruments could potentially give rise to limitations involving the compliance of obligations, amongst other and - specifically - concerning tax-related obligations, to the date hereof no official statement whereby a facility, extension or suspension is granted by the Tax Administration at the national level, has been issued in connection with the compliance of tax return filings and the subsequent payment of taxes. Under the current situation, this leads us to analyze the applicability of the exonerating circumstances of tax liability provided for in article 85 of the Organic Tax Code: an event of “force majeure” and the so-called “excusable error of law”.
Force majeure and compliance with tax-related obligations
As upheld by the majority of doctrine authors, an event of force majeure takes shape in the presence of an unforeseeable, irresistible and unintentional circumstance, absolutely preventing debtor from complying with the obligation agreed upon. In the area of taxation, our local jurisprudence has stated that “… in order to consider that the exonerating circumstance of tax liability under comment is meritorious, the party affected by an event of force majeure must prove that the event can actually be verified in the reality”.
In light of the notion of “force majeure” and the compelling need to prove its occurrence by either the taxpayer or the party responsible for tax payment, it may be considered – in principle - that the acknowledgement by the Venezuelan State of a pandemic, the suspension of work-related activities including banking, the protective economic measures taken such as the suspension of rental payments and the special payment regime created for credits in full force and effect, as well as the financial impact of the COVID-19 coronavirus worldwide spread crisis on both individuals and legal entities, constitute sufficient evidence to invoke this exonerating circumstance of tax liability in the face of a potential non-compliance of formal and material taxpayer duties..
Notwithstanding the foregoing and, as previously indicated, the Tax Administration at the national level has not issued an official statement whereby a facility, extension or suspension is granted in connection with the compliance of tax return filings and the subsequent payment of domestic taxes. On the contrary, taxpayers were urged by social media to file tax returns and pay taxes, even if it implied crowding the different offices of the National Integrated Service of Customs and Tax Administration, in the event that online processes turned out unsuccessful, all in the best interest of fulfilling tax-related obligations.
In this context, a question is raised as to whether the possibility of filing tax returns and making subsequent tax payments online constitute sufficient grounds for discarding that an exonerating circumstance of tax liability is present, in the face of potential noncompliance of tax-related obligations, particularly by considering that the process for determining tax-related obligations is rather complex; not only due the difficulties in accessing to the Tax Administration’s official website , which often forces taxpayers to personally appearing at its different offices to get the task done and, under the current circulation restrictions in force, this option can be limiting, but also, in the case of legal entities, the process entails verifying documents and accounting systems that are usually kept at company headquarters and, as a result of the suspension of work-related activities and the aforementioned circulation restrictions, it is virtually impossible to access the company’s premises, systems and documents to this end.
There are also economic limitations to be considered alongside these depicted practical limitations that could also give shape to an event of force majeure. As indicated above, the Executive has acknowledged through the decree whereby rental payments are suspended and the decree whereby a special payment regime of credits in force and effect is created, that the pandemic bears serious financial effects over the productive sector. Direct reference to these effects is made in one of them by stating that immediate action by the Venezuelan State is necessary to ensure continuity and workability in this sector.
In any case, since there is no express guidance on the compliance of tax-related obligations in the decree whereby an Overall Alarm Status has been declared and no official statement has been made by the Tax Administration on granting extensions or payment suspensions; taxpayers or party responsible for tax payment must comply with the corresponding formal and material duties, unless they rely on solid evidence of both the occurrence of an event of force majeure and their inability to fulfill tax-related obligations as a result thereof. In other words, they must rely on solid evidence of their inability to have access to accounting systems, of an absolute liquidity shortfall derived from halted economic activity, of their inability to have access to payment means originated from banking activity suspension or internet connectivity issues, amongst other situations.
Excusable error of law
We will now refer to another exonerating circumstance of liability contained in the Organic Tax Code, known as an excusable error of law. This circumstance takes shape when criteria understanding by taxpayers is divergent from the Tax Administration in light of different interpretations made on certain tax provisions or laws.
An example of these diverging views is the possibility of considering that the days passed as of the date of declaration of the Overall Alarm Status by the Executive are non-working days, attentively, to the suspension of deadlines for filing tax returns and paying taxes in accordance with the provisions contained in article 10 of the Organic Tax Code, in agreement with Official Notice SIB-DSB-CJ-OD-02415 issued by the Superintendency of the Banking Sector Institutions on March 15, 2020 as it was distributed to all banking offices and branches; thereby ensuring that online banking services solely are operational “as per the corresponding plans for rendering services during non-working days”.
On this regard, article 10 of the Organic Tax Code sets forth that: “… days when collection offices for national funds (financial institutions authorized to act as such) are not open to the public in accordance with the official annual activity calendar, are considered non-working days for the sole purpose of filing tax returns and making the corresponding tax payments”.
In light of the situation, this could lead to interpreting that deadlines established for filing tax returns and paying taxes are suspended until the first working day for banking institutions, irrespective of whether the Tax Administration’s offices may be open for business or certain payments can be actually made online, since the provision under comment expressly alludes to customer service (direct and personally to the public). However, it is important to note that the location of certain public banking offices coincides with the location of different offices of the Tax Administration and, the collection services for domestic taxes continued to be operational. Therefore, this could be a limiting factor for taxpayers at the time of considering the provisions contained in article 10 of the Organic Tax Code and the possibility of invoking the exonerating circumstance of liability referred to as an excusable error of law.
Since the Executive declared an Overall Alarm Status many different measures have been assumed by public entities. The application of such measures could originate contradiction or even different interpretations involving the compliance of obligations, amongst which, tax-related obligations. Nevertheless, we would like to highlight that in the face of the position assumed by the Tax Administration, it is paramount to thoroughly analyze any decision to be made and assess each case on the basis of the economic sector and conditions of each individual entity.
Thus, the aforementioned exonerating circumstances of liability on taxation matters, as well as any other intended to be invoked, will inevitably require from the evidence point of view, that the taxpayer or party responsible for tax payment necessarily and accordingly proves that an exonerating circumstance of liability is present. Even though these facts are publicly known, it is recommended that taxpayers exhaust all possibilities at hand in terms of complying with tax-related obligations, as most tax returns can be filed electronically, and taxes can be paid through online banking.
Finally, in an attempt to tackling these particular impossibilities or restrictions for taxpayers or party responsible for tax payment to comply with tax duty, a formal notification should be lodged with the Tax Administration on each particular case, whether personally or by e-mail. Another option is to consult with the tax authorities in order to obtain an official general statement as to how taxpayers must proceed under these unusual circumstances.
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